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. Kazakhs Prosper With Skillful Strategy Based On Oil Wealth

Beind the debris of the Soviet Empire a new Kazakhstan is slowly rising. AFP Photo
by Martin Sieff
Almaty (UPI) Jun 28 ,2004
Sitting astride huge reserves of oil and gas, the vast Central Asian nation of Kazakhstan is booming, but it took skilful diplomatic and business strategies to pull it off too.

With proven oil reserves of 35 billion barrels, as much as the North Sea, and projected further reserves at least three times as large -- around 100 billion to 110 billion barrels -- Kazakhstan might be expected to be an obvious magnet for foreign investment. And it has certainly been successful in attracting it on a huge scale. Some $24 billion worth has flooded in, mainly into its oil and gas sectors over the past decade. But its success in this endeavor was by no means preordained.

Like most other republics of the former Soviet Union, Kazakhstan, a huge underpopulated land four times the size of Texas and five times that of France hit hard times following the collapse of communism at the end of 1991.

By 1995, its Gross Domestic Product had dropped to 61.4 percent, or less than two-thirds of its 1990 level. This was a larger proportionate drop than Kazakhstan had even suffered during the dark years of the First Soviet Five Year Plan under dictator Josef Stalin's forced collectivization in the early 1930s.

Like Russia under President Boris Yeltsin, Kazakhstan was ravaged by hyper-inflation in the first half of the 1990. By the middle of the decade it had peaked at around 3,000 percent a year.

But President Nursultan Nazarbayev kept his head and in the late-90s enforced a series of bold economic reforms and prudent fiscal policies to restore the stability of the currency and make his country attractive to foreign direct investment, or FDI.

Kazakhstan undertook a process of demonopolization, privatization, debt restructuring, price liberalization, customs reform and tax restructuring, U.S. Undersecretary of State for Economic Business and Agricultural Affairs Alan Larson recently said in a speech to the American Chamber of Commerce in Kazakhstan.

Kazakhstan established a securities and exchange commission, liberalized trade, enacted laws on investment, established a new government procurement process and reformed its banking system, Larson said.

It worked. After registering a moderate recovery rate of 2.7 percent in 1999, Gross Domestic Product powered by a flood of energy sector FDI soared by 9.6 percent in 2000 and a rocket-like 13.2 percent in 2001. Over the past two years it has continued to outstrip Ireland and even China, posting gains of 9 percent in 2002 and 9.1 percent in 2002.

Today, Kazkhastan's hard currency reserves have grown to $7 billion -- the equivalent value of seven months imports of goods and services and in 2002 Moody's international credit rating agency upgraded the nation to Baa 3 -- the same rating it gave to Saudi Arabia and Bahrain, an extraordinary fiscal achievement for a former Soviet republic less than a decade and a half after the collapse of communism.

Kazkahstan's success has so far been welcomed in both Moscow and Washington. To Russia, President Nazarbayev has proven a loyal and consistent ally, repeatedly showing his readiness to work as a full partner in the Russian-led Commonwealth of International States and in the Shanghai Cooperation Organization headed by both Russia and China to maintain stability in potentially volatile Central Asia.

The Kremlin welcomes Kazakhstan's growing prosperity and continued cooperation as a crucial bedrock of stability in a region where Tajikistan, Turkmenistan and Uzbekistan all show alarming potential for subversion and destabilization at the hands of extreme Islamist elements.

In Washington, the Bush administration welcomes Kazakhstan's eagerness to court U.S. energy majors. The gigantic Tengiz oil field in the Caspian alone now provides a full 20 percent, or one fifth of Chevron-Texaco's global provable oil reserves, Kozakhan K. Abenov, managing director of Kazmunaygaz, the National Oil and Gas Company of Kazakhstan told UPI.

The administration also sees Kazakhstan's success as a crucial example of hope for the whole Central Asian region offering an alternative future than descent into Islamist extremism.

Kazakhstan has been in the midst of a remarkable transition from communism to free markets, Undersecretary of Larson said in his speech. When completed, this transformation could bring Kazakhstan into the global marketplace in a way not seen since Central Asia dominated international trade routes hundreds of years ago.

Kazakhstan's long-term success is by no means preordained. Introducing diversity into Kazakhstan's economy and freeing its human potential will require a huge national effort and a renewed commitment to democratic and market reforms and a key objective will be making this new economy open to outside investors, Larson cautioned.

Also, Nazarbayev will have to continue to walk his difficult tightrope, balancing his wooing of global investors with his crucial need to retain the support and protection of both Russia and China in maintaining regional security.

But so far, he has pulled it off.

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